The context here is Bay’s action while leading FERC’s enforcement division, and in particular his prosecution of electric power market participants who manage to run afoul of FERC’s vague definition for market manipulation even though their trading behavior complied with all laws, regulations, and market rules.

So here the WSJ‘s editorial board pokes a little at subsidized wind in the process of making a point about reckless prosecutions:

As a thought experiment, consider the production tax credit for wind energy. In certain places at certain times, the subsidy is lucrative enough that wind generators make bids at negative prices: Instead of selling their product, they pay the market to drive prices below zero or “buy” electricity that would otherwise go unsold to qualify for the credit.

That strategy harms unsubsidized energy sources, distorts competition and may be an offense against taxpayers. But it isn’t a crime in the conventional legal sense because wind outfits are merely exploiting the subsidy in the open. The rational solution would be to end the subsidies that create negative bids, not to indict the wind farms. But for Mr. Bay, the same logic doesn’t apply to FERC.

The first quoted paragraph seems descriptive of reality and doesn’t cast wind energy in any negative light. The second quoted paragraph suggests the subsidy harms unsubsidized competitors, also plainly true, and that it “distorts competition” and “may be an offense against taxpayers.” These last two characterizations also strike me as fair descriptions of current public policy, and perhaps as mildly negative in tone.

Of course folks at the wind industry’s lobby shop are eager to challenge any little perceived slight, so the AWEA’s Michael Goggin sent a letter to the editor:

Your editorial “Electric Prosecutor Acid Test” (May 19) ignores wind energy’s real consumer benefits by mentioning the red herring of negative electricity prices. Negative prices are extremely rare and are usually highly localized in remote areas where they have little to no impact on other power plants, are caused by inflexible nuclear power plants much of the time, and are being eliminated as long-needed grid upgrades are completed.

Wind energy’s real impact is saving consumers money by displacing more expensive forms of energy, which is precisely why utilities bought wind in the first place. This impact is entirely market-driven, occurs with or without the tax credit, and applies to all low-fuel-cost sources of energy, including nuclear.

The tax relief provided to wind energy more than pays for itself by enabling economic development that generates additional tax revenue and represents a small fraction of the cumulative incentives given to other energy sources.

Michael GogginAmerican Wind Energy AssociationWashington, DC

Let’s just say I’ll believe the “impact is entirely market-driven” when someone produces a convincing study that shows the exact same wind energy capacity build-out would have happened over the last 20 years in the absence of the U.S. federal Production Tax Credit and state renewable energy purchase mandates. Without the tax credit, the wind energy industry likely would be (I’m guessing) less than one-tenth of its current size and without a big tax credit wouldn’t be the target of much public policy debate.

Of course, without much public policy debate, the wind energy industry wouldn’t need to hire so many lobbyists. Hence the AWEA’s urge to jump on any perceived slight, stir the pot, and keep debate going.

On May 2 The Hill published a column by AWEA data spinner Michael Goggin, “Wind energy protects consumers,” in which the reader is regaled by tales of great service and low, low prices provided by the wind energy industry.

Sorting through the claims led me back to the AWEA blog, where among other things Goggin applauds the industry that pays his salary for its grand performance in trying times this past January in New York. Goggin exclaimed the New York grid operator “received very high wind output when it needed it most during the last cold snap, while other forms of generation experienced a variety [of] problems.”

Following the link provided to the NYISO press release I find the claim, “On Tuesday, the NYISO had the benefit of more than 1,000 MW of wind power throughout much of the day.” The New York grid operator reported peak demand during the day (January 7, 2014) at 25,738 MW, so wind energy’s contribution was in the 4 percent range. Another way to say that is that other forms of generation, despite experiencing a variety of problems, provided about 96 percent of the energy New York consumers received when they “needed it most.”

The AWEA website indicates that New York has an installed capacity of 1,722 MW of wind power. Doing the math reveals that about 40 percent of the wind energy industry’s generating capability failed to show when New York electric power consumers “needed it most.”

Impressive? Not really.

To more fully consider the situation, we’d have to ask just how much non-wind electric generating capacity has been driven from the New York market by subsidized wind power. It is part of the AWEA storyline that clean, low-cost wind energy “displace[s] output from the most expensive and least efficient power plants,” and obviously over time frequently displaced units are driven from the market. One may reasonably wonder how much generation capacity was driven from the market before that cold January day when New York electric power consumers “needed it most.”

In related news, the National Renewable Energy Lab just produced an exploration of the wind energy industry’s future with and without the Production Tax Credit. In brief, if the PTC is not revived once again, the industry will likely shrink by about half over the next several years, kept in business mostly by state renewable energy purchase requirements. Indirectly the study concedes that NREL doesn’t think wind power is cost competitive with alternative electric energy supplies, but under the best possible wind resource and grid access conditions.

Please note my occasional wind energy disclaimer: I am not against wind energy (a technology which can contribute real value in the right places), just against bad policy (which takes real value created by other people and shovels it in the direction of investors in wind energy assets and people who happen to own windy plots of land with good grid access).

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about the federal government’s wind power cost estimates. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

Next in his response Goggin moves into a more detailed version of his claim my report “relies on old and theoretical data for the cost of wind, even though it had access to more recent real-world data.”

As I mentioned in an earlier post, I primarily draw on the Lawrence Berkeley National Lab’s 2012 Wind Technologies Market Report (WTMR), published in August 2013, and the National Renewable Energy Lab’s 2011 Cost of Wind Energy Review (CWER), published in March 2013. These two reports are the most recent publications in the federal government’s two long-standing research efforts examining the cost of wind energy. If this work isn’t current enough for Goggin, his complaint is with the national labs and not me.

The WTMR summarizes “real-world data,” while the CWER presents Levelized Cost of Energy (LCOE) estimates for wind power. The NREL’s LCOE estimate relies on data from the Berkeley Lab’s WTMR and is typically published a few months later. Since the Berkeley Lab’s 2012 report was published a little over two months ago, the NREL LCOE estimate update for 2012 likely won’t emerge for another few months.

My report focuses on these two recent government publications because they are the latest summaries from the two most thorough and complete research efforts on the developer’s cost of wind energy in the U.S., and because they are the source of the most frequently cited information on wind energy costs.

In the following I reply to remarks Goggin makes in the first half of his more detailed comments.

Like this:

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

The AWEA response to my report includes the retort, “IER is also incorrect in alleging policy support for wind energy is large or unusual.” (Link in source.)

Actually, no claim in my report suggests policy support for wind is large relative to other energy resources–I don’t discuss subsidies or policy supports for other energy sources. I didn’t intend to allege a relative subsidy size claim. But if Goggin is interested in my view, it is: Unfortunately, policy supports for politically-favored energy sources are not at all unusual, and they tend to reduce overall economic performance, and we’d be better off if we gave up on trying to direct energy markets from Washington DC.

We can’t reach back and undo all of the damage from bad energy policies of the past, but we ought to fix the energy policy we have now. And by “fix” I mean cut energy production subsidies, purchase mandates, favorable tax treatments, regulatory limits on competing energy resources, and otherwise minimize the role of political influence in the choices of energy producers and consumers.

Cut them all down: renewable subsidies, fossil-fuel subsidies, and nuclear subsidies. Sure, do something about pollution, and I’m not in principle against government-sponsored research, but various energy production subsidies and other policy supports tend to benefit a few at the expense of the rest of us.

What my report does claim is the PTC-subsidy for wind power imposes costs on non-wind participants in power markets. Without the PTC, we’d have a lot fewer wind turbines connected to the grid; the wind turbines that did get built would not bid into markets at negative prices, and with fewer wind turbines installed the resulting modest displacement of non-wind power might even be a net economic benefit.

Part of the problem is the PTC subsidizes output at the margin and so directly distorts prices and the generation mix in regional power markets. The alternative Investment Tax Credit subsidy sometimes available to wind power developers, on the other hand, is inframarginal and a bit less distorting: excessive amounts of wind are built, but ITC-subsidized wind power faces no special incentive to run at negative prices. (In economics terms, the ITC is more like a lump-sum transfer while the PTC is a per-unit production subsidy. A per-unit production subsidy is typically seen as more distortionary than a lump-sum transfer.) Generally, when wind power runs at negative prices, it suggests that non-wind baseload power plants are being pushed into a costly pattern of cycling off and back on. These cycling costs, as well as the modest wear-and-tear on the wind turbines operating when their output has negative value, are excess costs caused by the PTC subsidy.

Next: So far I’ve been responding to the introduction of the AWEA/Goggin response. The rest of the response goes into a little more detail on certain points–I’ll respond in a little more detail as seems appropriate.

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

Goggin complains I am relying on obsolete data and government estimates in my report instead of “price data from signed contracts.” He wrote:

The reality is that wind energy is driving electricity prices down, thanks to large recent reductions in its cost. Contracts that utilities signed to purchase wind energy, which were approved by state regulators and filed with the Federal Energy Regulatory Commission, document that the average purchase price for wind energy was $40 per MWh in 2011 and 2012.

While IER tries to hide behind old data and theoretical estimates, it cannot escape from the real-world data proving that utilities are signing low-cost contracts to purchase wind power. It is strange that an organization that claims to support free-market price signals would use government estimates instead of price data from signed contracts.

Wind energy’s costs have fallen by more than 40 percent over the last four years. These cost declines have been driven by technological improvements as well as the development of a domestic wind-turbine manufacturing sector that now builds over 70 percent of wind turbine value in the United States. [Emphasis in original.]

It is true that wind energy is driving electric prices down, but it has little to do with the reduction in capital cost and more to do with the effect of adding low marginal cost wind power in regional power markets. Whether these are efficient prices are another matter–consider, for example, that many in Texas are worried that low power prices are discouraging investment in new generation at a time that ERCOT studies suggest new investment will soon be needed. I’ll come back to this question in a later post.

Old data? My primary resources are the 2012 Wind Technologies Market Report (WTMR) produced by the Lawrence Berkeley National Lab, published in August of 2013, and the 2011 Cost of Wind Energy Review (CWER) produced by the National Renewable Energy Lab, published in March 2013.These two document series funded by the Department of Energy are the most recent publications in the longest, most detailed and complete assessments of wind power costs available targeting the U.S. wind industry. I cite to earlier reports in the WTMR and CWER series on a number of occasions when they present relevant discussions of methods and data sources that are not reproduced in the most recent report. A scan through my bibliography shows I cited one document as old as 2004, but the bulk of my citations link to documents published in 2011, 2012, and 2013.

Government estimates instead of market data? Goggin claims, “It is strange that an organization that claims to support free-market price signals would use government estimates instead of price data from signed contracts.” Not at all. The Berkeley Lab and NREL reports are the most frequently cited and likely most authoritative resources available on the topic of wind power costs. The primary point of the my report was to evaluate and provide broader context for understanding the frequently-cited wind cost estimates presented in the Berkeley Lab and NREL reports. For that reason, the report focuses on these “government estimates instead of price data.”

There is more. Cost and price are far from equivalent concepts. Goggin seems to miss this point, but the Berkeley Lab understands. At page 49 of the 2012 WTMR, the report authors said, “because the PPA prices in the Berkeley Lab sample are reduced by the receipt of state and federal incentives (e.g., the levelized PPA prices reported here would be at least $20/MWh higher without the PTC, ITC, or Treasury Grant), and are also influenced by various local policies and market characteristics, they do not directly represent wind energy generation costs.” (Emphasis in the original.)

As even a basic understanding of economics reveals, a subsidy can reduce a price even as it increases the cost of a good or service.

Goggin claims that, because “the average purchase price for wind energy was $40 per MWh in 2011 and 2012,” we can conclude that there are large reductions in cost. Goggin’s $40 per MWh report likely comes from the most recent WTMR, but here is the full sentence with a bit more information:

After topping out at nearly $70/MWh for PPAs executed in 2009, the average levelized price of wind PPAs signed in 2011/2012—many of which were for projects built in 2012—fell to around $40/MWh nationwide, which rivals previous lows set back in the 2000–2005 period.

So prices for contracts in 2011/2012 have returned to levels of the 2000-2005 period? And this is, supposedly, evidence of vast reductions in the cost of wind power, that we are now–after shoveling billions of dollars into the wind power industry post 2005–only now getting wind power contract prices back to the level that they used to be? Goggin’s got more explaining to do if he wants to make an argument using prices to represent costs.

A much more likely explanation is that wind power contract prices depend, in part, on alternative sources of electric power. As natural gas prices rose up through 2008, utilities were willing to pay higher prices for wind power. As natural gas prices fell beginning in late 2008, wind power contract prices fell with them. I’ll hazard the guess that these contract prices have more to do with natural gas prices then reductions in wind power costs.

Up next: Are government subsidies for wind power large or unusual compared to government support for fossil fuels, nuclear power, and other resources?

On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day the Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.

Before we get to substantive issues, I’d like to emphasize that I have no particular objection to wind energy technology. In fact, geek-wise I think it is kind of neat that tall, graceful, well-designed machines can make electric power out of the wind. However, I do object to a wide range of federal energy policies including the Production Tax Credit. Like most other government subsidies, the PTC distorts the electric power market and makes most people worse off.

Okay, still not yet to the substantive issues, but consider Goggin’s opening paragraph:

After two failed attempts to attack wind energy earlier this month, the fossil-fuel-funded Institute for Energy Research (IER) has now struck out swinging (strikes one and two are documented here). Strike three comes from a report written by Michael Giberson that relies on obsolete data and largely regurgitates anti-wind myths that have already been debunked. As a result of those mistakes, IER’s report overstates the actual cost of wind energy by around 100%.

[Links are carried over from the AWEA website for the convenience of the interested reader.]

The words “fossil-fuel-funded” link to a website ran by the Natural Resources Defense Council intended to finger the groups “trying to stop clean energy and new jobs” and reveal (some of) these groups sources of funds. It notes that the Institute for Energy Research (IER) leadership includes people who had worked for large energy companies in the past (Enron, Koch Industries) and that IER had taken money from ExxonMobil. (I tried to dig a little deeper by using resources relied upon in a Daily Kos article published a few days ago about links between the Koch brothers and various policy and advocacy groups, but didn’t turn up anything more on IER.)

Now I didn’t personally speak to anyone from Koch Industries or ExxonMobil about any of this work, and I don’t personally care much where IER gathers its money from (as long as I get paid). It also doesn’t matter to me where AWEA gets its money.

The rest of Goggin’s opening paragraph asserts I relied on obsolete data and anti-wind myths to make my case, and as a result I overstate the “cost of wind energy by around 100%.” These points get into substantive issues, I’ll take them up in subsequent posts.